Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, February 14, 2007

Contest over Mills Corp Heats Up

Mills Corp. rejected the $21 bid from Brookfield Asset Management and preferred the $24 bid from a group led by  Simon Property Group, the largest mall operator in the US.  Brookfield has three days to make a counter-offer.  See NY Times, Mall Owner’s Board Accepts Higher Offer From Simon 

February 14, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Nasdaq Didn't Want LSE That Bad

Nasdaq CEO Robert Greifeld spoke about the failed attempt to acquire the London Stock Exchange, saying that it refused to negotiate with large LSE shareholders who wanted a higher price.  The deal lapsed on Saturday because of LSE shareholders' lack of support.  See WPost, Nasdaq CEO: "Chose Not to Win" LSE Bid and WSJ, Nasdaq Earnings Jump, But Investors Are Glum.

February 14, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Caremark-CVS Developments

New developments in the unpopular Caremark-CVS merger -- CVS increased its bid by increasing the special  cash dividend component.  Its price for a Caremark share, valued at 60.26, is still less than rival Express Scripts' bid of 61.08 and the current market price.  In addition, the Delaware court postponed the shareholder meeting scheduled to vote on the merger until next month.   The Chancellor questioned Caremark's insistence that it can't speak to Express Scripts because of antitrust issues. See NY Times,  CVS Raises Its Bid for Caremark Rx as Judge Delays Vote and WSJ, Judge Delays Caremark Vote.

February 14, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Congress Investigates Sallie Mae Stock Sale

Congressional committees are making inquiries into Sallie Mae Chair Albert L. Lord's sale of 400,000 shares of his company's stock (valued at $18.3 million) just days before President Bush announced a cutback in government subsidies in the student loan program that caused the stock price to drop.  Sallie Mae calls the timing "coincidental."  See WPost, Congress Probes Timely Sale of Sallie Stock.

February 14, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Tuesday, February 13, 2007

SEC Study on Short-Selling Restrictions

The SEC's Office of Economic Analysis released its Economic Analysis of the Short Sale Price Restrictions under the Regulation SHO Pilot.    The Pilot Program exempted one-third of the stocks in the Russell 3000 Index from all short-selling price restrictions, to permit evaluation of the impact of the price restrictions on the trading process. 

February 13, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC's Nazareth on SOX 404

SEC Commissioner Nazareth in her remarks before SEC Speaks:

The Section 404 management guidance that we proposed this past December is an example of how the Commission has begun to address unexpected and unintended costs of regulation. Although we all realized that the implementation of Section 404 would entail costs, I do not believe that anyone anticipated that the costs would be so high, or that management's assessment would become driven almost exclusively by the PCAOB's Auditing Standard Number 2. Upon realizing the full costs of implementation, the Commission sought comments, hosted two roundtables, and received reports from both the GAO and SEC Advisory Committee on Smaller Public Companies. The Commission then issued a concept release in July 2006 to raise specific questions about 404 implementation and solicit feedback. The resulting proposed management guidance I believe maintains the benefits of 404 while emphasizing efficiency and innovation instead of a one-size-fits-all approach. The guidance is intended to liberate management by encouraging them to apply the guidance to their own situations instead of following a prescribed mold. Adjustments to 404 implementation, along with the PCAOB's proposed AS 5 and COSO's guidance to smaller issuers, should serve to strengthen the benefits of 404 while reducing the costs of compliance.

February 13, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Casey: SOX 404 Needs Fixing

From SEC Commissioner Kathleen Casey's remarks before the SEC Speaks:

We need to fix 404. No other issue in recent times has come to symbolize regulation gone awry than this relatively modest-looking provision of the Sarbanes-Oxley Act. While the spirit and letter of the law never contemplated the costly and burdensome result that this provision has generated, the law's implementation undoubtedly facilitated such a result.

The Commission and the PCAOB are now faced with attempting to undo the regulatory framework and consequent market behavior that has driven this costly compliance regime. I believe proposals by the Commission and the PCAOB on management guidance and revisions to AS2, respectively, are positive efforts to adopt a more principled, risk-based approach that should help ease the burdens and costs we see today, particularly for smaller companies.

February 13, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Dow Chemical Settles FCPA Charges

The SEC filed a settled civil action in the United States District Court for the District of Columbia alleging that The Dow Chemical Company (Dow) violated the books and records and internal controls provisions of the Foreign Corrupt Practices Act (FCPA) [Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 (Exchange Act)], in connection with an estimated $200,000 in improper payments made by a fifth-tier foreign subsidiary of Dow to Indian government officials from 1996 through 2001. Without admitting or denying the allegations in the Commission's complaint, Dow consented to pay a $325,000 civil penalty.

The complaint alleges that the Dow subsidiary, DE-Nocil Crop Protection Ltd. ("DE-Nocil"), headquartered in Mumbai, India, manufactured and marketed pesticides and other products primarily for use in the Indian agriculture industry. According to the complaint, beginning in 1996, DE-Nocil made approximately $39,700 in improper payments to an official in India's Central Insecticides Board to expedite the registration of three DE-Nocil products. Most of these payments were made through agreements with contractors which added fictitious charges on its bills, or issued false invoices, to DE-Nocil. The contractors then disbursed these extra funds, at DE-Nocil's direction, to the CIB official. The complaint also alleges that from 1996 and to 2001, DE-Nocil made $87,400 in improper payments to state officials in order to distribute and sell its products.

In a related proceeding, the Commission today issued a settled cease-and-desist order against Dow finding that that Dow violated the books and records provisions and internal controls provisions of the Exchange Act in connection with the improper payments made by DE-Nocil. Without admitting or denying the Commission's findings, Dow consented to the entry of the order that requires Dow to cease and desist from violating those provisions.

February 13, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Fraud Charges Against Former Enterasys CEO

On February 8, the SEC filed a partially settled civil fraud action in the United States District Court for the District of New Hampshire against Enrique (Henry) Fiallo, the former Chief Executive  Officer of Enterasys Networks, Inc. (Enterasys).  The complaint alleges that from March 2000 through December 2001, Fiallo participated in a company-wide scheme to fraudulently inflate revenues at Enterasys and its former parent company, Cabletron Systems, Inc., and thereby convince the market that Enterasys was a viable independent company with consistently strong revenue growth.  The complaint further alleges that Fiallo directly participated in transactions which involved undisclosed side agreements in which the purchaser was granted full return or exchange rights, or payment for product was contingent upon the purchaser's resale of the product, or payment was contingent upon a future investment by Enterasys.  In the latter, Enterasys agreed to take a  debt or equity interest in its customer, in return for that company's agreement to use the related funds to purchase product from Enterasys.

February 13, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Roundtable on Int'l Financial Reporting Standards

The SEC announced that on March 6, 2007, senior SEC staff members from the Office of the Chief Accountant, the Division of Corporation Finance and the Office of International Affairs will hold a roundtable discussion on the “roadmap” regarding International Financial Reporting Standards (IFRS).  The “roadmap” describes the path toward eliminating the need for non-US companies to reconcile to US GAAP financial statements they prepare pursuant to IFRS issued by the International Accounting Standards Board in filings with the Commission. In the United States, foreign private issuers are already filing using IFRS, althougoh they must reconcile the results with US Generally Accepted Accounting Principles.  See SEC Staff Roundtable on International Financial Reporting Standards “Roadmap” Set for March 6.

February 13, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

NASD Suitability Standards

NASD has issued a Notice to Members dealing with the situation where a registered representative changes firms and brings his customers with him whose portfolios may contain investments that are proprietary products of the former firm and that the rep can no longer service.  NASD warns: "Although the ability to provide the customer with service in connection with an investment can be a relevant factor to consider in connection with the decision whether to retain the investment, any recommendation by the firm or its associated persons to sell a product and to replace it with another one may be made only after fully assessing the suitability of the transaction for the customer and determining that the transaction is in the customer’s best interests in view of all considerations. Member firms and their associated persons may not reach any suitability determination or make any recommendation on the basis that the purchase of a security or sale and replacement of a security will yield greater remuneration for them."  See Notice to Members 07-06, Special Considerations When Supervising Recommendations of Newly Associated Registered Representatives to Replace Mutual Funds and Variable Products.

February 13, 2007 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

LSE For Sale?

Aftrer rebuffing Nasdaq, the London Stock Exchange is exploring other options and other alliances with exchanges in the era of globalization of markets.  See WSJ, LSE, Available Again, May Seek New Partner.

February 13, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

ISS Urges No Vote on Caremark-CVS Merger

The Caremark-CVS merger seems unlikely to win shareholder approval at the special shareholders meeting next Tuesday, after Institutional Shareholder Services joined other proxy advisers in urging a no vote.  CVS's bid is deemed too low, and the Caremark board is criticized for not negotiating more aggressively.  See WSJ, ISS Urges Caremark Holders To Vote Down Bid by CVS

February 13, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Home Dept May Let Go of Wholesale Business

Home Depot has given in to activist investor Richard Whitworth again, who owns 1.3% of its stock.  It announced it is considering a sale or spin-off of its wholesale supply business.  Previously it appointed one of Whitworth's colleagues to the board.  See WSJ, Home Depot Bows to Whitworth Again.

February 13, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

J&J Reports Illegal Foreign Payments

Johnson & Johnson voluntraily disclosed that it had made illegal foreign payments in two undisclosed countries in connection with sales of medical devises.  A senior executive resigned.  See WSJ. J&J Reports Improper Payments.

February 13, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

An Anti-Investor SEC?

Has Chair Cox's SEC become anti-investor?  The New York Times examines two recent events that support this view.  First, the SEC's chief accountant said that the agency is considering ways to protect accounting firms from large damage awards in private suits.  Second, the SEC's amicus brief in the Tellabs case sides with the defense and argues that the Seventh Circuit's interpretation of the pleading standard under PSLRA is too low -- instead, plaintiffs must show a "high likelihood" of scienter and the judge, in deciding, ought to consider facts favorable to the defendants.  Mr. Cox says it's all in the best interests of investors.  See NY Times, S.E.C. Seeks to Curtail Investor Suits.

February 13, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Monday, February 12, 2007

Amendment of NYSE Rule 123D

NYSE issued Information Memorandum 7-15, REDUCTION OF MINIMUM TIME PERIODS AFTER DELAYED OPENINGS, HALTS AND "EQUIPMENT CHANGEOVERS," to advise members and member organizations that the Exchange has amended Rule 123D (Openings and Halts in Trading) to shorten the minimum time period between a specialist’s dissemination of a price indication and the delayed opening or reopening of trading in a security.


February 12, 2007 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

NYSE Censures Deutsche Bank Securities

NYSE Regulation, Inc. censured and fined Deutsche Bank Securities, Inc. a total of $1.275 million in two separate disciplinary actions.  The first action, which resulted in the imposition of a censure and $950,000 fine, concerns violations relating to the firm’s failure to provide required conflict of interest disclosures on published research reports. The other action concerns supervisory and control deficiencies in connection with a former employee’s misuse of password protected data at another firm, and in connection with DBSI’s order entry, audit trail and prime brokerage business activities.   

February 12, 2007 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

NASD Fines Distributors of Mutual Funds

NASD announced today that it has fined three distributors - Scudder Distributors, Inc. of Chicago, Putnam Retail Management Limited Partnership of Boston and AllianceBernstein Investments, Inc. of New York - a total of $700,000 for violations of NASD's non-cash compensation rules, including improperly providing entertainment and paying for guest expenses at training and education meetings.  "Today's enforcement action underscores the need for distributors of mutual funds and variable annuities to understand the limits surrounding the use of non-cash compensation." said James S. Shorris, NASD Executive Vice President and Head of Enforcement. "Non-cash compensation of the sort found in this case is prohibited because it can induce brokers to put their own interests ahead of their clients' interests."  See NASD Fines Scudder Distributors, Putnam Retail Management, AllianceBernstein for Improper Training and Education Expenditures.

February 12, 2007 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

MeAfee Ex-Counsel Reportedly Facing Criminal Charges

Federal prosecutors are preparing to bring criminal charges against the former General Counsel of McAfee Inc., Kent Roberts, in connection with  the backdating of stock options.  Mr. Roberts was fired last May.  See WSJ, McAfee Ex-Counsel Likely To Face Options Charges.

February 12, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)